Deputy Commissioner of Taxation v Norton Developments Pty Ltd

The background facts 8The plaintiff relies upon the affidavits of Gary Elmer (sworn 11 April 2012) (exhibit B) and Derrick Barclay (sworn 15 August 2012) (exhibit C). 9Mr Elmer deposes (paragraph 12) that on 10 June 1999 the defendant was registered in New South Wales as an Australian Proprietary Company limited by shares. Mrs Desley Soong was appointed the sole director and secretary of the defendant on 27 February 2005 and remained the sole director and secretary of the defendant until 15 May 2012 (see exhibit A). 10On 12 May 2011 the plaintiff prepared and posted, to the registered office of the defendant, a notice of estimate of liability for PAYG withholding amounts ("estimate notice"), pursuant to s 268-15 of Schedule 1 of the TAA. This estimate notice is taken to have been given to the defendant at the time the Commissioner posted it (12 May 2011). 11Pursuant to item 1 in s 268-40 of Schedule 1 of the TAA, the defendant must lodge a statutory declaration within 7 days of service of the estimate notice ("the 7 day period"). In this case, the 7 day period expired on 19 May 2011. 12On 24 May 2011, after the expiration of the 7 day period, the plaintiff received a statutory declaration affirmed by Ms Desley Soong on 23 May 2011. The text was as follows: "STATUTORY DECLARATION(FOR PAYG WITHHOLDING AMOUNTS) (This declaration must be given to the Commissioner within 7 days after the Commissioner sends the notice of estimate to you) I, Desley Soong, [address], director, do solemnly and sincerely declare

1. that I am a director or a secretary or the public officer or the supervising entity (delete that which is inapplicable) of NORTON DEVELOPMENTS PTY LTD, and am authorised by the company to make this declaration.
2. that NORTON DEVELOPMENTS PTY LTD withheld amounts as set out in Column 2 of the Table below under Division 12 in Schedule 1 of the Taxation Administration Act 1953 (TAA 1953), during the period or periods which are listed in Column 1 of the Table 1 below, and in relation to which period(s) the Commissioner has given notice of estimate made under section 268-15 in Schedule 1 to the TAA 1953.
3. that the actual unpaid amount of the liability or each such liability is specified in Column 3 opposite the applicable period specified in Column 1 as the Withholding Period. TABLE Period Number Column 1Withholding Period Column 2Amounts withheld ($) Column 3Unpaid amount of liability ($) (1) 1 April 2009 to 30 April 2009 NIL NIL (2) 1 May 2009 to 31 May 2009 NIL NIL (3) 1 June 2009 to 30 June 2009 NIL NIL (4) 1 July 2009 to 31 July 2009 NIL NIL TOTAL: NIL

And I make this solemn declaration by virtue of the Statutory Declarations Act 1959, and subject to the penalties (*) provided by that Act for the making of false statements in statutory declarations, conscientiously believing the statements contained in this declaration to be true in every particular. [Signature of person making declaration] Declared at BELMORE the 23 day of May 2011 [Signature of person before whom the declaration was made] JUSTICE OF THE PEACE #165753" 13The plaintiff's challenge to the adequacy of this statutory declaration is discussed in more detail below. However, I note the plaintiff raised with the defendant the failure to lodge the statutory declaration in time in its letter of 25 May 2011: "Dear Director RE: ESTIMATE LIABILITIES - PAYG WITHHOLDING AMOUNTS Reference is made to our Notice of Estimate issued on 12 May 2011 relating to estimates of PAYG Withholding amounts for the April 2009, May 2009, June 2009, and July 2009 periods. It is noted that a Statutory Declaration relating to the PAYG Withholding for the above periods has been submitted. However, this Statutory Declaration was not received until 24 May 2011, and as this is not within 7 days after the Notice of Estimate was given to the company, it has not resulted in the estimates being revoked. As such, the estimates remain outstanding, and together with accrued General Interest Charge, the balance of the company's account is now $218,028.77. Payment of this amount should be made forthwith or legal action for recovery may commence." 14As already noted, the defendant admits in the defence that it did not pay the amounts due and payable by the due dates in the estimate notice.

The basis of the claim 15The plaintiff submits that the defendant is liable to pay GIC pursuant to s 268-75 of Schedule 1 of the TAA and Part IIA of the Schedule 1 of the TAA. The tax liabilities the subject of these proceedings are all primary tax debts due and payable by the defendant to the plaintiff. 16Pursuant to s 8AAZC of the TAA, the plaintiff established and maintained an RBA in respect of the defendant's primary tax debts, including GIC that accrued on an RBA deficit debt in accordance with s 8AAZF of the TAA. The Commissioner allocated the defendant's primary tax debts referred to above to the RBA in accordance with s 8AAZD(1) of the TAA. Upon consideration of the RBA there is a deficit debt in accordance with s 8AAZA of the TAA. Accordingly, pursuant to s 8AAZF(1) of the TAA the Commissioner is entitled to claim interest. Pursuant to s 8AAZF(2) of the TAA, the Commissioner altered the balance of the RBA in the Commissioner's favour by the amount of the GIC payable. 17Pursuant to s 8AAZH(1) of the TAA the defendant is liable at the end of each day that the RBA is in deficit to pay the Commonwealth the amount of the debt, which is due and payable at the end of that day. There is no evidence before the court to suggest that the RBAs were not duly kept. 18As at 15 August 2012, the RBA Certificate shows that the total RBA deficit debt owed by the defendant is $251,363.61. Pursuant to s 8AAZI(1) of the TAA, once the RBA is produced, there is prima facie evidence that the RBA was duly kept and that the amounts and particulars in the statement are correct. The burden of proof then shifts to the defendant.

How the PAYG Withholding regime works 19The "pay as you go" (PAYG) withholding regime is established by provisions including Division 12 of Schedule 1 to the TAA. Pursuant to s 12-35 of the TAA, an entity must withhold an amount from the salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity). Section 12-35 expressly does not require that the entity making the payments be the employer of the employees. 20Section 16-70 of Schedule 1 to the TAA sets out the payer's obligation to remit the amount withheld to the Commissioner of Taxation ("the Commissioner") as follows: "An entity that withholds an amount under Division 12 must pay the amount to the Commissioner in accordance with this Subdivision." 21Amounts so withheld and remitted to the Commissioner are credited against the income tax payable by the employee under s 6-5 of the Income Tax Assessment Act 1997 (Cth) ("ITAA 1997") or other sections of the income tax legislation (s 18-15 of Schedule 1 to the TAA). The remitted amounts cause a corresponding reduction in the employees' income tax liability. 22The "estimate" regime in Part VI, Division 8 of the Income Tax Assessment Act 1936 (Cth) ("ITAA 1936") was introduced in 1993. It contained ss 222AFA to 222AMB. The purpose of the estimate regime is to promote the timely and efficient recovery of amounts that have not been remitted to the Commissioner despite a liability to withhold and remit them under provisions such as s 12-35 of Schedule 1 to the TAA (s 222AFA(1) of the ITAA 1936). Before this regime, the Commissioner could recover these amounts from the payer but first had to establish the exact amount of the liability, by which time the "efficient and timely recovery of unremitted deductions" was often frustrated (Explanatory Memorandum to Insolvency (Tax Priorities) Legislation Amendment Bill, Chapter 2; see also s 222AFA of the ITAA 1936). 23The estimate regime allows the Commissioner to estimate the amount by which a payer is liable to remit on account of its withholding obligations, and demand payment of that estimate (s 222AHA(1) of the ITAA 1936). The payer has opportunities to declare that no amount was remitted or prove that there is no withholding obligation (ss 222AGC(1), 222AGD(1) and 222AHC(2) of the ITAA 1936). 24The provisions of the estimate regime, such as s 222AHB of the ITAA 1936, ensure that the Commissioner will not ultimately recover more by way of estimates than the amount of the underlying liability (in this context, the underlying liability is the payer's liability to withhold under a section such as s 12-35 of the TAA). Unless and until the underlying liability is shown to be zero, or an amount less than the estimate, the Commissioner is entitled to recover the amount of the estimate (ss 222AHA(1), 222AHB and 222AHC of the ITAA 1936). 25On 1 July 2010 the Tax Laws Amendment (Transfer of Provisions) Act 2010 (Cth) repealed Part VI of the ITAA 1936, including the estimate provisions in former Division 8 of Part VI. The new estimate provisions, which came into force on 1 July 2010 were inserted as Division 268 of Schedule 1 to the TAA (Schedule 1, Part 1 Item 10 of the Tax Laws Amendment (Transfer of Provisions) Act 2010 (Cth)). Generally, the same mechanism is in place. 26Schedule 1, Part 3 Item 58 of the Tax Laws Amendment (Transfer of Provisions) Act 2010 (Cth) provides that an existing estimate remains in force from the commencement time as if it had been made under s 268-10 in Schedule 1 to the TAA. The Commissioner may estimate the unpaid and overdue amount of a liability based upon what the Commissioner thinks is reasonable (sub-ss 268-10(1), (2) and (3) of the TAA). The Commissioner must give written notice of the estimate and sets out the content of the notice (s 268-15 of the TAA). Despite s 29 of the Acts Interpretation Act 1901 (Cth), the written notice is taken to have been given at the time the Commissioner posts it to the defendant (s 268-15(4) in Schedule 1 of the TAA) or otherwise makes the notice available. 27The recipient of the notice is then liable to pay the estimate (sub-ss 268-20(1), (2) and (3) of the TAA). 28The estimate may be revoked or reduced in certain circumstances, for instance upon the giving of a statutory declaration within 7 days after the Commissioner gave the written notice. Such a declaration should contain facts sufficient to prove that the underlying liability never existed, or is less than the estimate (s 268-40 of the TAA; item1 of s 268-40 of the TAA). The underlying liability is as defined in s 268-10(1) of the TAA. In the case of a company that has a director, sub-s 268-90(3) of the TAA provides that the statutory declaration or affidavit must be made, sworn or affirmed by a director. 29Amounts due and payable under an estimate notice may be recovered in accordance with Part 4-15 of Schedule 1 to the TAA (s 222AFA(5) of the ITAA 1936). General interest charge accrues on these amounts while they remain outstanding (ss 8AAA-8AAH, 8AAZF of the TAA). An estimate of unremitted amounts is a "tax-related liability" (s 250-10(1), Sch 1 to the TAA, item 65) and as such is a debt due to the Commonwealth and payable to the plaintiff (s 255-5, Sch 1 of the TAA). Similarly, the general interest charge is a debt due and payable to the Commonwealth and to the plaintiff (s 250-10(2), Sch 1 of the TAA, items 70, 125, 130, and 135).

The Running Balance Account ("RBA") 30The tax liabilities in question are primary tax debts due by the defendant under the BAS provisions, as defined in sub-s 995-(1) of the ITAA 1997. The Commissioner is entitled to establish a RBA pursuant to s 8AAZC of the TAA. Furthermore, the Commissioner is entitled to allocate the primary tax debts to the RBA in accordance with s 8AAZD(1) of the TAA. According to s 8AAZA of the TAA, an RBA deficit debt in relation to an RBA of an entity, means a balance in favour of the Commissioner. 31The Commissioner is entitled to claim interest pursuant to s 8AAZF(1) of the TAA. 32A "tax related liability" is defined in ss 255-1 of the TAA. Section 250-10(2) provides a table of "tax related liabilities" and item 70 refers to the general interest charge ("GIC") payable pursuant to s 8AAE of the TAA. The GIC is assessed pursuant to Division 1 of the Part IIA of the TAA. Pursuant to s 8AAZF(2) of the TAA, the balance of the RBA may be altered in the Commissioner's favour by the amount of the GIC payable. If there is an RBA deficit debt on an RBA at the end of a day, the tax debtor is liable to pay to the Commonwealth the amount of the debt. The amount is due and payable at the end of that day. 33The Commissioner may at any time prepare a statement for an RBA, containing such particulars as the Commissioner determines.

The burden of proof concerning the accuracy of the RBA 34As previously stated, the burden of proof as to the accuracy of the RBA shifts to the defendant due to the presumption granted by the TAA. Section 8AAZI(1) of the TAA provides that the production of an RBA statement is prima facie evidence that the RBA was duly kept; and that the amounts and particulars in the statement are correct. Section 8AAZJ of the TAA indicates that in proceedings for recovery of an RBA deficit debt, a Commissioner's certificate stating: (a)that no tax debts (other than general interest charge on the RBA deficit debt) were allocated to the RBA after the balance date shown on a specified RBA statement for the RBA; (b)that general interest charge is payable on the RBA deficit debt, as specified in the certificate; (c)that payments and credits were allocated to the RBA, as specified in the certificate; (d)that a specified amount was the RBA deficit debt on the date of the certificate. in respect of a specified RBA is prima facie evidence of those matters. 35The legislative intent of this provision is to the effect that once the plaintiff produces an evidentiary certificate in recovery proceedings in relation to an RBA debt, the plaintiff takes the benefit of having proved prima facie for the amounts outstanding. The effect of s 8AAZI and 8ZZZJ was considered by Macready As-J in Old Kiama Wharf Co Pty Ltd v Deputy Commissioner of Taxation [2005] NSWSC 929 at [31] as follows: "With the benefit of the prima facie evidence which these (referring to the Running Balance and Certificate) give the Commissioner can proceed to recover without any explanation of the amounts to a primary tax liability." (emphasis added)

Does the defendant's statutory declaration discharge the burden of proof? 36As indicated above, the defendant must provide a statutory declaration within 7 days, or seek an extension. I am satisfied that the failure of the defendant to provide a statutory declaration within 7 days, or to seek an extension of time for the provision of a statutory declaration, means that the provisions for timing under s 268-40 of the TAA have not been met. However, a statutory declaration was provided only five days thereafter. In those circumstances, I should also make findings as to whether there has been compliance with ss 268-40(4) and 268-90 of the TAA. 37Section 268-90 of the TAA provides: "The ... affidavit must verify the sum of all amounts you withheld under Division 12 during the relevant period or the fact you did not withhold any such amounts during the period and what has been done to comply with Division (Payer's obligations and rights) in relation to such amounts." 38This provision was considered in Transtar Linehaul Pty Limited v Deputy Commissioner of Taxation [2011] FCA 856 ("Transtar Linehaul"). While that case dealt with s 268-40(4) of the TAA, s 268-90 of the TAA also applies to s 268-40(2) of the TAA, which addresses reductions of estimates. While Transtar Linehaul refers to affidavits, the same principles apply to statutory declarations relating to the reduction of estimates. Robertson J stated (at [73], [76] and [78]): "... it does not follow that the provisions require no more than a formal statement or that the material relied on may not be the subject of evaluation or testing. Depending upon the complexity of the subject-matters, to establish a prima facie case the evidence will often need to be substantiated beyond the level of mere assertions about the contents of records which are not produced or mere conclusions about complex or mixed questions of fact and law. [I]t is not necessary, in order to effect the statutory revocation referred to, that the corporation file all the evidence as if the matter were a full scale trial on the estimate. ... In the present case, in my opinion, to enliven s 268-40(4) it was necessary to do more than assert in affidavits, without reference to primary facts or to primary documents which must have existed, that during the period 1 January 2010 to 31 March 2011, no amounts on account of PAYG withholding were withheld from payments made to any person or that [the company] had no employees receiving salary or wages, and paid no amount as salary or wages or at all to any person as an employee, from which it might have withheld an amount on account of PAYG or that during the relevant period [the company] withheld no amount on account of a PAYG obligation of any description..." 39In the case of Transtar Linehaul, the company's director gave an explanation for the fact amounts were not withheld. The Court did not accept this explanation because: " ... this material dealt in a summary way with matters, which were by no means pure questions of fact. In addition it dealt with those matters in such a rolled up and conclusory way that it did not in my view verify facts sufficient to prove that the underlying liability, to pay to the Commissioner the amount that Transtar Linehaul withheld, never existed." (at [79]) 40Ms Soong's statutory declaration similarly fails to satisfy the requirements as to content. She provides no explanation, no facts and no supporting documentation to prove the underlying liability (the subject of these proceedings) never existed. The document simply states the withholding periods are "Nil". This falls well short of the standard required. Transtar Linehaul makes it clear that this is not sufficient to satisfy the statutory criterion, and that something more than such a bare denial is required. The statutory declaration would need to establish primary facts, or identify primary documents which support the assertion that the amount of the withholding tax in this case is nil. Such materials may be expected to include bank statements or business records. Furthermore, it does not answer any of the specific issues raised in s 268-40(4) of the TAA. 41Finally, it should be noted that Robertson J in Transtar Linehaul stated that an affidavit relied on for the purposes of s 268-40 could be tested. His Honour said (at [81]): "I see no reason why in a case such as the present, and assuming the proceedings relate to the recovery of the unpaid amount of the estimate, the affidavit may not be tested in the ordinary way. Were it otherwise a formally correct but inherently or latently flawed affidavit would enliven s 268-40(4)." 42Finally, while there is no evidence before this Court challenging the accuracy of the estimates, a mere challenge to the accuracy of the estimates also does not assist the defendant. Section 268-25 of the TAA provides: "You are liable to pay the unpaid amount of the estimate even if: (a) The underlying liability never existed or has been challenged in full; or (b) The unpaid amount of the underlying liability is less than the unpaid amount of the estimate." 43If there were matters in addition to the statutory declaration to be put before the court, the defendant could have set these out in the defence, or appeared in court today. The defence is as opaque as the statutory declaration, and the defendant has not been represented in court. Accordingly, in addition to my finding that the defendant did not serve the statutory declaration in time, I am satisfied that the defendant has not discharged the onus of proof.

Conclusion 44For these reasons, the plaintiff's claim succeeds and I enter judgment for the plaintiff.

Orders (1)Judgment for the plaintiff for $251,363.61 inclusive of interest to 15 August 2012. (2)Defendant pay plaintiff's costs. (3)Exhibits retained for 28 days.

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